AGA Would Formalize Capacity Turnback Rules

The American Gas Association has added its voice to those who
would protect the pocketbooks of current customers and require
sponsors of new pipeline construction to bear the risk of the
projects.

There's an $8 billion pricetag on new construction
projects-announced, proposed or under construction. All told they
would add about 22 Bcf/d of capacity between now and 2002, AGA said
in a status report on new pipeline construction applications at the
Federal Energy Regulatory Commission.

The report, "If You Build It, Will They Come?" voices AGA's
concern that its distributor members who are pipeline customers not
be saddled with the costs of the new capacity or "the costs of
consequent unsubscribed existing capacity."

The report explores "how to make sure existing capacity is used
effectively before building new capacity," said Karen Hill, staff
vice president, regulatory affairs. One way to achieve this would
be to formalize the process for reverse open seasons in which
pipelines solicit permanent turnbacks of existing capacity that
customers don't need before offering new space.

Pipeline solicitations for capacity turnbacks have been offered
with varying degrees of enthusiasm, AGA observed. While some have
been proactive in the process, others have simply put a short
notification on their bulletin boards, or included almost
impossible requirements as to what capacity they would accept.

Pipelines should hold expansive reverse open seasons without
point-to-point requirements and without demanding that returned
capacity maintains or improves the economics of an expansion
project, AGA said. In addition, if a new project will serve an
existing LDC customer directly, the LDC should be allowed to reduce
its contract demand accordingly and turn back bypassed capacity.

AGA also believes FERC should revisit and tighten its
presumption for rolled-in pricing on smaller projects with a less
than 5% impact on rates, and limit discount adjustments so costs
cannot be shifted to existing customers. Particularly, discounts to
retain customers in the face of new construction competition should
not be allowed if the new construction sponsors include an
affiliate of the existing pipeline. This would "simply allow the
pipeline to circumvent the intended effect of the 'at risk'
condition on the newly constructed pipeline," AGA's report said.

The association's dollar total of new pipeline construction
planned or underway has dropped from about $9 billion quoted in a
January, 1998 report to $8 billion today, according to Jane Lewis,
AGA's senior managing counsel, regulatory affairs, but it includes
"a lot more offshore projects." Some of the projects listed
originally were simply "placeholders" offered by pipelines which
actually weren't sure what options they would be pursuing. The
report lists projects with miles of pipe, costs, capacity and
projected in-service dates.

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